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Amazon’s earnings announcement on Tuesday covering its fourth-quarter 2020 results may be bittersweet for the company. While it proudly went over its largest quarter by revenue ever — to the tune of a whopping $125.56 billion in sales — the results arrived alongside the revelation that chief executive officer and founder Jeff Bezos will step away as CEO to become executive chair of the Amazon board in the third quarter of 2021.
Judging by the numbers, he’s going out on a high note. With revenue that shot past the $100 billion revenue threshold, a first for the company, Amazon Inc. shattered expectations for the holiday quarter. Revenue of $125.56 billion easily dwarfed the $119.7 billion expected, and earnings per share of $14.09 far exceeded predictions of $7.23 per share.
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Bezos offered more insight into the transition in his prepared remarks: “Amazon is what it is because of invention….If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive,” he wrote. “When you look at our financial results, what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.”
That the pandemic’s effects on consumer spending behaviors benefited the company seems beyond question, especially to experts who have been watching e-commerce momentum closely this year.
“Since the onset of the pandemic, we’ve started seeing entirely new segments of consumers — the fastest growing e-commerce segment in 2020 was 65 and older — who in the past were more comfortable taking a 15-minute drive to a store, be forced to give online shopping a try,” said Ryan Rommelfanger, cofounder and chief creative officer at Envoy, a design and innovation consultancy that led the strategic vision and content for Amazon’s global app store launch. “Some will go back to their old habits, more will stay, but one thing is for sure, the world has changed.”
Locked down consumers and businesses flocked to the internet in record numbers, especially during the holiday quarter — which, for Amazon, included early and ongoing promotions and its postponed Prime Day in October, all of which amplified the business. The company also raced to invest in new spaces, logistics and fulfillment in the fourth quarter, which came together to support the peak shopping season.
The company also seemed to come to grips with ongoing COVID-19 measures. Amazon expects its COVID-19-related costs to decline, dropping to roughly $2 billion in the first fiscal quarter of 2021. The company forecasts operating income of $3 billion to $6.5 billion this quarter, inclusive of the COVID-19-related expenditures.
Naturally, Amazon figures that first-quarter sales of 2021 will slow compared to the fourth quarter 2020, landing between $100 billion and $106 billion. But that would still represent growth of 33 percent to 40 percent over the year-ago quarter and beat analyst estimates of $95.8 billion.
Amazon Web Services — whose ceo, Andy Jassy, will take Bezos’ place later this year — grew from $9.95 billion in revenue last year to $12.7 billion this quarter. While that didn’t quite reach the $12.83 billion expected by analysts, it still represents a significant chunk of the business. AWS remains a dominant player in the cloud services sector and pulls in 10 percent of Amazon’s total sales.
“Amazon’s Q4 results, spurred by the retail sales explosion due to the COVID-19-related surge in online shopping, the delayed Prime Day, and typical holiday volume, well-exceeded guidance on both the revenue and operating income front, with AWS continuing to hum along, generating over half of the overall operating income,” stated Moody’s vice president Charlie O’Shea.
“Overall performance of retail is encouraging, with the operating margin for North America jumping over 50 basis points despite heavy promotions, as well as international, which eked out a roughly $300 million profit. Both of these levels are made even more impressive as they occurred despite a 67 percent increase in worldwide shipping to $21.5 billion,” O’Shea continued.
Amazon’s interest in fashion and retail may continue growing this year as well. Alongside its earnings, the company called out a number of initiatives it has rolled out in recent months — including Amazon Fashion’s Made for You, a service that allows customers to design custom T-shirts to their exact measurements and style preferences.
Jassy’s ascension may also speak volumes, considering AWS has become one of the main cloud providers and artificial intelligence partners in the retail sector.
Meanwhile, for the small and medium-size independent merchants selling on the site, the company described the last holiday season as “the best ever.” According to Amazon, sellers surpassed $4.8 billion in worldwide sales from Black Friday through Cyber Monday, for a growth of roughly 60 percent over the previous year. “During the holiday season as a whole, small and medium-sized businesses in the U.S. sold nearly one billion products in Amazon’s store,” it added.
Earnings aside, Tuesday amounted to a huge trove of Amazon news. The Federal Trade Commission announced that the company will pay $61.7 million to settle charges that it withheld tips from customers for Amazon Flex drivers.
The company also revealed more details about its plans for HQ2, including a design preview for its new north Virginia campus. Part of its planned $2.5 billion-plus investment in its second headquarters, the Arlington, Va., location revolve around an outdoorsy appeal, with office and retail structures anchoring wooded areas, complete with an amphitheater, dog run and large-scale bicycle parking spaces. The Helix, a tower measuring 350 feet in height, will hold court at the center and showcase a winding set of walkways adorned with trees and plants.
The plans offer some amount of closure on the HQ2 project, which set off a competition among towns, cities and states across the U.S. before the coronavirus epidemic took hold. But even now, the project still has resonance. As employers have pivoted toward pandemic-driven, remote-only work environments, Amazon’s ongoing development suggests that at least some major tech companies still believe in having offices.
The company originally intended to open a campus in Queens, New York, but nixed those plans in 2019. Now it’s clearly pressing on with Arlington.
According to Amazon, the location will cater to some 13,000 employees, with more room for additional staff. Ultimately, the company seeks to create 25,000 jobs in the area.
Of course, these matters seem to pale in comparison to the top headline, which is the shift in leadership. On the earnings call, Brian Olsavsky, chief financial officer, took questions regarding what the new roles for Bezos and Jassy will look like.
The CFO took a moment to clarify things:
“I will reiterate that Jeff is not leaving. He is getting a new job. He’s going to be executive chair of the board, a super important role,” he explained. Bezos will continue taking on big-picture decisions, or “large one-way door issues,” as he put it, such as acquisitions, strategies and new business categories, among other things.
As for Jassy, “Andy has been here since 1997,” said Olsavsky. “He has not only been a visionary leader, he’s a strong operator, as I said, and he’s got a great track record of developing multiple things and businesses within Amazon — not the least of which is AWS, which is arguably, the most profitable important technical, technology company in the world.
“We’re very happy to see both Jeff and Andy get new perspectives, and Andy has a chance to put his imprint on Amazon,” he said.